US LevFin Wrap — Internet Brands brings jumbo refi, Qualtrics rides resurgence, Galway dismay

David Bell
+Sasha Padbidri
+ 1 more

13 April 2023•5 min read

Just like the weather on the East Coast, the primary market heated up this week.

The launch of a $4.7bn TLB refinancing for Internet Brands added some heft to a primary pipeline that’s still dominated by amend-and-extend activity. The deal, which is the largest syndication seen in the primary in over a year, has a commitment deadline of 20 April.

And Qualtrics’ acquisition financing provided another interesting point to highlight the improving tone in the market. The buyside has been wary of downgrades at cash-burning single-B software companies, but the Qualtrics syndication was oversubscribed and accelerated.

Hot demand is giving some borrowers a chance to push for tighter pricing, with insurance software biz Applied Systems offering investors a $290m incremental 2026 TLB with no discount.

Bankers are also started testing the waters for more upcoming supply: some $2.75bn of debt is set to hit the market for Solenis’s acquisition of Diversey.

“The next month or so should tick up in activity,” said one CLO manager. “Anyone who wants to get a deal done is going to want to do that before people disappear for the summer.”

Melting in the low 90s, like your loan portfolio (via Stockvault)

In bonds, construction materials company Knife River tapped both the bond and loan market to finance its spin-out from IG-rated parent MDU Resources. It focuses on infrastructure, but still offered a juicy yield to offset any concerns about a downturn in the broader construction space.

Meanwhile, Cleveland-Cliffs printed a $750m 6.75% senior guaranteed note due 2030 to pay down ABL borrowings. The company told investors that it plans to reduce net debt as higher steel prices drive improved free cash flow.

A stronger primary market may reflect expectations that the Fed could slow the pace of interest-rate hikes could cool in light of slower inflation growth; this unseasonably warm weather could also be a reminder of the window borrowers have before any potential summer slowdown.

Chemical brothers

The potential launch of the Solenis and Diversey financing could be a sign that a bankers are feeling more confident. Sources said the deal may offer a litmus test of investor appetite for sizeable new financings amid expectations that interest rate hikes may begin to slow.

However, the financing also follows a deluge of supply from chemicals companies in recent weeks, including the likes of Momentive, Koppers and Vantage Speciality.

The push for wider pricing on several recent deals has led to suggestions of investor fatigue, as the buyside considers commodity price increases, margin pressure and cyclical volatility in the sector.

Still, at least the Solenis and Diversey tie-up is still happening, which is more than can be said for Carlyle’s much-discussed acquisition of Cotiviti.

It was fun while it lasted, but the collapse of talks between Carlyle and current sponsor Veritas (reportedly the result of disagreements over equity valuation) means the record-sized $5.5bn unitranche that was set to back the deal is no more.

So far there haven’t been any suggestions that the financing was a factor in the deal’s downfall, but as we reported last week, the unitranche had a lot more in common with a regular loan syndication than your average private credit deal.

Galling

Speaking of private credit, there were more signs this week that relations between sponsors, borrowers and lenders are becoming more strained.

Galway Insurance is the latest example, as it faces lender pushback on a new financing package that investors see as being offered at below market terms — an attempt, they argue, to avoid triggering MFN protection for the company’s existing lenders.

Tribes of Galway, assemble! (via Flickr)

This isn’t just a private credit thing. Industry-wide, investors are sharpening their pencils for disputes over aggressive amendments as borrowers and credits look to avoid outright bankruptcies.

“I think the biggest concern among managers in the industry are loose loan documents that were issued in borrower friendly markets,” said Bret Leas, partner and head of asset-backed finance at Apollo.

“With the amendments coming through the system, some people are running out of options and some lenders can end up on the wrong side of the credit agreement.” You can hear more from Leas at IMN’s CLOs and Leveraged Loans conference, next Monday and Tuesday in NYC.

Three more things before you go:

We spoke to Scot French, a governing partner at HPS, about the firm’s new $17bn private credit fund focused on junior debt
For our latest 9Questions, we interviewed Jason Colodne, co-founder of Colbeck Capital Management, a middle-market fund manager focused on strategic lending
This week’s episode of our Cloud 9fin podcast this week features David Hulme of Advent Capital Management, who discusses the recent resurgence in convertible bond issuance